Banks may not rush to invest in ReiTs, InVITs: Analysts

ReiTs and InVITs typically offer higher yields but they carry higher risks as well

The Reserve Bank of India (RBI)’s move to allow banks to invest in Real Estate Investment Trusts (REITs) and Infrastructure Investment Funds (InvITs) might not find many takers, if experts are to be believed. 

Currently, banks can invest in instruments such as mutual fund schemes, venture capital funds and equities to the extent of 20 per cent of their net owned funds. This limit will now include REITs and InvITs. 

REITs and InvITs typically offer higher yields but carry higher risks as well. This is because money raised through these instruments is invested in projects in the real estate and infrastructure sectors, which can be impacted due to cyclicality. A bank which would have already lent to these companies can now also take an equity interest in these companies’ projects via REITs and InvITs. Analysts say a bank which has lent to a real estate developer, for instance, would typically know all the intricacies about the projects and may consider investing in these instruments. This extra knowledge of the business would potentially reduce the risk, albeit partly. 

“I actually believe some private banks might invest in these instruments, as they have higher yields of about 12 to 14 per cent. Banks may take small exposures to these instruments,” said a banking analyst with a leading foreign brokerage, on condition of anonymity.

However, some other experts believe banks could take time to warm up to such investments. Tirthankar Patnaik, India strategist, Mizuho Bank, said, “I am not too excited about this move, as it is just creating one more base of investors for REITs. To my mind it’s just opening one more avenue for banks to park excess money on which they will earn higher yields provided they are willing to take up that risk.”

Another concern analysts have is that these instruments — REITs in particular — have not taken off and hence not a good investment option just yet. InvITs, though, are a step ahead of REITs, but still have some ambiguity around taxation of these instruments. For now, most experts believe, even if banks do, these investments will be smaller in size and might not give a significant boost to their other income.